Chapter 6
Markets You Can Spread Bet
One of the primary advantages that spread betting offers individual retail investors is the ability to make money trading a wide range of financial markets.
This is because spread betting doesn’t involve actually buying or selling the underlying security. Instead, it’s just making a bet on whether the price will rise or fall.
Therefore, you can spread bet a wide range of markets including foreign stocks, global indices, commodities, currency pairs, and bonds, all from the convenience of a single trading account, and without having to worry about currency exchange risk or opening and managing different accounts in different countries.
There are literally thousands of different spread bets available each trading day, so it would be impossible to name them all, but here is a rundown on the main markets you can spread bet.
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1. Stocks
Trading stocks is, of course, one of the most popular forms of investing.
When you purchase equities – stock shares, you obtain an ownership interest in a company and therefore have the ability to share in its profits. When you spread bet on stock shares, you’re simply betting on whether the price of the stock will rise or fall.
Since you don’t actually own any shares, you are not in a position to directly receive dividends that the company may issue or vote in AGMs. However, your spread betting provider, depending on when and how long you have a spread bet on a stock in place, may make an adjustment to your account to effectively replicate dividend payments.
Stock Market by TradingView
Through your spread betting provider, you can also spread bet on stocks traded on foreign exchanges.
2. Market indices
Rather than spread betting on individual stocks, you may prefer to spread bet on market indices such as the FTSE 100, S&P 500, or DJIA that reflect the overall performance of the equity markets. One of the advantages of spread betting is that you can place spread bets on foreign market indices just as easily as placing spread bets on stock indices in your own country.
In addition to major market indices, there are sub-indices that reflect the performance of various market sectors, such as technology, real estate, or healthcare.
3. ETFS
Exchange traded funds (ETFs) are similar to mutual funds in that they are a portfolio of related investment assets, such as stocks of companies in certain sectors or commodities such as precious metals. However, ETFs offer an advantage over mutual funds in that they are freely traded on exchanges.
That fact, and the fact that ETFs offer access to investing in a wide range of assets, has made them an increasingly popular investment vehicle. Just as with betting on a particular stock or market index, you can easily place a spread bet on whether the price of an ETF will rise or fall.
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4. Commodities
Commodities are natural resources such as precious metals, oil, coal, agricultural products, and other products such as cotton. They’re traded on various exchanges just as stocks are.
The factors that affect commodity prices can vary significantly from those that affect stock prices. For example, commodity prices can be significantly affected by weather and natural disasters. When spread betting commodities, it’s important to be aware of how they are priced.
- Bloomberg Commodity Index (BCOM – formerly the Dow Jones-AIG Commodity Index)
- S&P GSCI (formerly the Goldman Sachs Commodity Index)
- Rogers International Commodity Index (RICI)
The Rogers index tracks the largest number of commodities worldwide. It is composed of 38 commodities selected to reflect a “balanced, representative international” selection of raw materials.
The commodities contained in the index are weighted based on their perceived significance in relation to international trade. There are also three sub-indices of the Rogers index – agriculture, energy, and metals.
5. Forex
Foreign exchange (forex) trading has become one of the most popular trading markets since the turn of the century. Forex trades the relative values of one currency against another. For example, the price of the currency pair GBP/USD represents the value of the Great British Pound relative to the US Dollar.
There are numerous currency pairs that you can place a spread bet on, just like any other spread bet – betting on whether the price of the currency pair will rise or fall. If you buy the spread, you are betting that the first currency listed in a currency pair will rise in value relative to the second currency listed in the pair.
Conversely, if you sell short the spread, you are betting that the first currency will decline in value relative to the second currency.
6. Bonds and interest rates
It’s also possible to place spread bets on bonds and interest rates.
You can place a spread bet on whether the price of a certain bond will go up or down. There are a multitude of different bonds issued in different countries that you can spread bet on.
It’s also possible to simply place a spread bet on whether a certain interest rate, such as the Prime Lending Rate in the UK or the US Prime Rate, will rise or fall.
7. Sports
Spread betting on sports doesn’t involve taking odds as traditional sports betting does. Instead, sports spread betting, like all other spread betting, is betting relative to the spread offered on a specific outcome in a sporting event.
If you believe that more than 5 goals will be scored, then you would “buy” the spread; if you believe that fewer than 3 goals will be scored, then you would “sell” the spread.
Sports spread betting offers virtually as much variety as financial spread betting. Not only can you place bets on all types of sporting events – football, tennis, golf, boxing, etc. – but there are also any number of spread bets that may be available relative to a single sporting event.
8. Cryptocurrencies
A relatively new addition to spread betting is cryptocurrencies. Digital currencies are operated away from a central bank, and run on decentralised ledgers. Because they have a price that can be externally verified they can be spread bet on.
Other spread bets
The spread betting markets continue to expand, always offering new instruments or events to place spread bets on.
It’s possible to spread bet such things as political elections, housing prices, and even the weather. Spread betting providers constantly strive to expand their offerings of spread bets to give their clients the widest possible range of spread bets to choose from.
Specialise in a market
Spread betting offers a virtually unlimited number of things to potentially place spread bets on. Spread betting firms give their clients thousands of possible market bets to choose from. Most spread bettors end up specialising in spread betting one market or another.
For instance, one spread bettor may choose to only spread bet on stock prices, while another chooses to spread bet on commodities, and another strictly places sports bets.
You can choose your favourite spread betting market based either on your knowledge about that particular market or on having an interest in learning about the market.
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Feel free to pursue spread betting a market that you’re already familiar with or learning how to trade a new market.
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